Newsletter

Texas Tech System to sell bonds, save money on low interest rates

Part of the proceeds will be used to buy back bonds, saving the university an estimated $11.2 million.

Brunjes

Turner

In a response to low interest rates, the Texas Tech System will issue $198 million in tax-exempt and taxable bonds as early as today.

According to business news website Bloomberg, interest rates on AA-rated education bonds, the grade Fitch Ratings assigned to Tech’s debt, have fallen to 2.92 percent. This is the lowest since Sept. 28 and near the record low of 2.87 percent set in September 2010.

Jim Brunjes, the university’s chief financial officer and vice chancellor, said the AA rating means Tech is below only one category, AAA. He said Tech was also given a “positive outlook” rating by Fitch.

“It means bonds of the Texas Tech University System are a very good investment for investors, and they’re very stable, and they’ve got a strong financial backing behind them,” he said.

Part of the proceeds will be used to buy back bonds, Brunjes said, saving the university an estimated $11.2 million.

“We borrowed money in 2001 and 2003. That money now we can refinance like you would a house; we can get a lower interest rate now,” Brunjes explained. “If we save as much as 2 percent, we can refinance it.”

The bonds will be used to provide financing for major capital projects within the Tech system, which includes Tech, the Tech Health Sciences Center and Angelo State University.

Major capital projects include the new residence hall at 19th Street and University Avenue, the new Rawls College of Business Administration and several athletic improvement projects, Brunjes said.

Renovations to Jones AT&T Stadium and new facilities for the soccer and softball teams total $29 million, he said.

Plaza Verde, a $35 million residence hall at Angelo State, also will be financed by the bonds, Brunjes said, in addition to renovations to the school’s recreational center and library.

Tech business college and Student Union Building renovations will be paid back by student fees; athletic program expansions will be paid back by athletic revenues; and residence hall construction will be paid back by residence hall revenues, Brunjes said.

The new residence halls will add 500 beds at Tech and 400 at Angelo State, he said. The bonds will provide a way for the universities to pay for the additional housing over a course of 25 years.

“What is different is that interest rates are at an all-time low, and this is borrowing money for a long period of time, 25 to 30 years. The interest rates, I believe, are as low as they’re going to get,” Brunjes said.

The university system sells bonds every two or three years and will continue on that schedule, he added. Because interest rates fluctuate during the duration of the bond, it’s difficult to say exactly how much the system will pay, Brunjes said.

The bonds will be issued by the system’s Board of Regents and will be sold through several underwriters, Brunjes said. Tech alumni get priority, and Texas residents are second priority for the bonds, he said.

Jerry Turner, chairman of the board, said the meeting is posted for today, but it could be pushed back if something happens in the market.

The board saw the current market as a great opportunity to lower the system’s debt service by doing the refundings, he said.

“We have a need ... to lock in today’s interest rates, take out the commercial paper we’ve issued, and provide new money for additional projects. ... We are certainly a growing system with demands at each of the components,” Turner explained. “The interest rates are very effective. What we do (today) will be a 20- to 30-year decision. We like the interest rates; they’re as low as they’ve been in a long time.”

The board is confident in Brunjes’ work, Turner said, because the chief information officer has been through the process many times.

“We hope it will give us more stability because we are at the risk of a spike in short-term rates, and it will improve our balance sheet,” he said.